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The SEC’s new rules are already changing how startups raise money

When you can crowdfund up to $5 million in equity, who needs VCs?

Republic

New rules allow startups to raise more money from regular people.

Photo: Republic

Sahil Lavingia, the CEO of commerce platform Gumroad, is raising $5 million in new funding. But he's not traversing Sand Hill Road looking for a few big checks. Instead, he wants that $5 million to come in a few hundred dollars at a time, from investors he's never met. Maybe even investors who no one would call "investors."

The backstory: Last fall, the SEC passed a new set of rules for "exempt offerings," which allow startups to raise funds by selling securities. The SEC acknowledged that its exempt offering rules had become "overly complex," and tried to make them simpler to understand.

  • The new rules increase the amount of money a startup can raise through Regulation Crowdfunding, which works like ordinary Kickstarter-style crowdfunding but involves selling equity instead of products and thus comes with many more rules attached. (Though not nearly as many as your average public company.) Reg CF, as it's known, used to only allow a company to sell $1.07 million in securities every year. Starting Monday, that number jumped to $5 million a year.
  • The rules also allow startups to "test the waters," which means they can talk much more publicly about raising money without actually raising money.

Gumroad feels an affinity to the crowdfunding approach: Given its product gives creators tools to sell stuff more easily, doing the same with Gumroad itself seemed only right. So after raising money last year from accredited investors, Lavingia is offering the same terms to the general public. "We are in the creator economy, and that's how we grow," he said. "Our creators advocate for us. And this is kind of the perfect next step: Let's get you on the cap table."

  • The campaign is happening on Republic, the platform hoping to bring retail investors to private companies in the way Robinhood has with public ones.
  • Anyone who qualifies — which is easier than becoming an accredited investor, but still not open to anyone — can invest between $100 and $10,000 in Gumroad. "There's a chance that this investment goes to zero," Lavingia said. But if it does, so will all the brand-name investors like Naval Ravikant.
  • What does your investment get you? A piece of the company and … not much else. Lavingia said he might do a monthly call for all investors, but has no plans to bring thousands of new people into the company's decision-making process.

These rule changes are probably going to make VCs crazy, since now there are easy ways to loop them out of the super-early fundraising that often brings the biggest windfalls. Lavingia, who has a history of trying new things in this space, seems pretty OK with that: "I think if VCs were really upset about rolling funds, they're really upset about just trying to skip the VCs at all if possible."

  • He's also hoping that this model — start with a lead investor who negotiates and does due diligence, then offer the same terms to the general public – becomes a go-to move for startups everywhere.

Will this change the way Gumroad is run? After all, it's one thing to take money from a bunch of rich investors, and quite another to have thousands of regular people bet their savings on you. Lavingia said … probably?

  • "I've been running Gumroad very, some would say, haphazardly over the years," he said. "I told the team I probably will be more aggressive. We may need a few deadlines."

The metaverse is coming, and Robinhood's IPO is here

Plus, what we learned from Big Tech's big quarter.

Image: Roblox

On this episode of the Source Code podcast: First, a few takeaways from another blockbuster quarter in the tech industry. Then, Janko Roettgers joins the show to discuss Big Tech's obsession with the metaverse and the platform war that seems inevitable. Finally, Ben Pimentel talks about Robinhood's IPO, and the company's crazy route to the public markets.

For more on the topics in this episode:

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David Pierce

David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.

After a year and a half of living and working through a pandemic, it's no surprise that employees are sending out stress signals at record rates. According to a 2021 study by Indeed, 52% of employees today say they feel burnt out. Over half of employees report working longer hours, and a quarter say they're unable to unplug from work.

The continued swell of reported burnout is a concerning trend for employers everywhere. Not only does it harm mental health and well-being, but it can also impact absenteeism, employee retention and — between the drain on morale and high turnover — your company culture.

Crisis management is one thing, but how do you permanently lower the temperature so your teams can recover sustainably? Companies around the world are now taking larger steps to curb burnout, with industry leaders like LinkedIn, Hootsuite and Bumble shutting down their offices for a full week to allow all employees extra time off. The CEO of Okta, worried about burnout, asked all employees to email him their vacation plans in 2021.

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Stella Garber
Stella Garber is Trello's Head of Marketing. Stella has led Marketing at Trello for the last seven years from early stage startup all the way through its acquisition by Atlassian in 2017 and beyond. Stella was an early champion of remote work, having led remote teams for the last decade plus.

Facebook wants to be like Snapchat

Facebook is looking to make posts disappear, Google wants to make traffic reports more accurate, and more patents from Big Tech.

Facebook has ephemeral posts on its mind.

Image: Protocol

Welcome to another week of Big Tech patents. Google wants to make traffic reports more accurate, Amazon wants to make voice assistants more intelligent, Microsoft wants to make scheduling meetings more convenient, and a ton more.

As always, remember that the big tech companies file all kinds of crazy patents for things, and though most never amount to anything, some end up defining the future

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Karyne Levy

Karyne Levy ( @karynelevy) is the West Coast editor at Protocol. Before joining Protocol, Karyne was a senior producer at Scribd, helping to create the original content program. Prior to that she was an assigning editor at NerdWallet, a senior tech editor at Business Insider, and the assistant managing editor at CNET, where she also hosted Rumor Has It for CNET TV. She lives outside San Francisco with her wife, son and lots of pets.

Protocol | China

China’s edtech crackdown isn’t what you think. Here’s why.

It's part of an attempt to fix education inequality and address a looming demographic crisis.

In the past decade, China's private tutoring market has expanded rapidly as it's been digitized and bolstered by capital.

Photo: Getty Images

Beijing's strike against the private tutoring and ed tech industry has rattled the market and led observers to try to answer one big question: What is Beijing trying to achieve?

Sweeping policy guidelines issued by the Central Committee of the Chinese Communist Party on July 24 and the State Council now mandate that existing private tutoring companies register as nonprofit organizations. Extracurricular tutoring companies will be banned from going public. Online tutoring agencies will be subject to regulatory approval.

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Shen Lu

Shen Lu is a reporter with Protocol | China. She has spent six years covering China from inside and outside its borders. Previously, she was a fellow at Asia Society's ChinaFile and a Beijing-based producer for CNN. Her writing has appeared in Foreign Policy, The New York Times and POLITICO, among other publications. Shen Lu is a founding member of Chinese Storytellers, a community serving and elevating Chinese professionals in the global media industry.

It’s soul-destroying and it uses DRM, therefore Peloton is tech

"I mean, the pedals go around if you turn off all the tech, but Peloton isn't selling a pedaling product."

Is this tech? Or is it just a bike with a screen?

Image: Peloton and Protocol

One of the breakout hits from the pandemic, besides Taylor Swift's "Folklore," has been Peloton. With upwards of 5.4 million members as of March and nearly $1.3 billion in revenue that quarter, a lot of people are turning in their gym memberships for a bike or a treadmill and a slick-looking app.

But here at Protocol, it's that slick-looking app, plus all the tech that goes into it, that matters. And that's where things got really heated during our chat this week. Is Peloton tech? Or is it just a bike with a giant tablet on it? Can all bikes be tech with a little elbow grease?

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Karyne Levy

Karyne Levy ( @karynelevy) is the West Coast editor at Protocol. Before joining Protocol, Karyne was a senior producer at Scribd, helping to create the original content program. Prior to that she was an assigning editor at NerdWallet, a senior tech editor at Business Insider, and the assistant managing editor at CNET, where she also hosted Rumor Has It for CNET TV. She lives outside San Francisco with her wife, son and lots of pets.

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